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Chapter 1 Introduction to Business Law

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  1. Chapter 1 Introduction to Business Law 1 Definition & Scope 2 Features of commercial law 3 Basic principles 4 Effect of law on business operations 5 Resolution of business disputes

  2. 1.1 Definition 1 Definition & Scope Total sum of law regulating the business organizations and their activities 1.2 Major business law Sources of major business laws

  3. 2 Features of commercial law

  4. 2.1 Lots of compulsory rules • All business organizations are subject to registration. • All business organizations shall pay tax. • Subcommittees; 1/3 ID in the BOD 2.2 Constant changes • Inevitable: responsive to the fast changing social-economic life. • German Commercial Code: more than 50 times, 100 clauses. • Japanese Company Law: 1990, 1993, 1994, 1997, 1998, 1999, • 2000, 2002. • Taiwan’s Company Law: 12 times since 1929.

  5. 2.3 Technicality • Corporate registration procedures, formalities for issuing and listing corporate shares and bonds • NI: issuance, endorsement, acceptance, rejection, payment • Maritime: vessel, towage, collision, general average and adjustment 2.4 Internationalization WTO rules: ADR, ASR, SMR; Maritime Law (1992)

  6. 3 Basic principles Law of the law, or rule of the rule

  7. Illustration: Wendeng Brewery’s passing-off The plaintiff, Lüxian Brewery obtained the registered trademark “Xihuang (喜凰)” brand with ringed figure to be used on its spirit in 1987. On its label it also print such characters as “Xihuang spirit” (喜凰酒), in addition to the above registered trademark. Defendant, Wendeng Brewery owned the registered trademark “Tianfushan (天福山)” brand with ringed figure. In order to obtain more market shares, the defendant instructed the printing factory to print the label of “Xihuang (喜凰)” brand with minor modification., i.e. replacing the “Xihuang (喜凰)” mark with “Tianfushan (天福山)” mark, and the “Xihuang spirit” with “Xifeng spirit (喜凤酒)”. Consumers were misled and the plaintiff lost lots of market shares. In handling the case, the appellate court, i.e. Shangdong High People’s Court found it was difficult to establish that the trademark used by said defendant is the same or similar to that of the plaintiff, since the defendant merely passed off the label of the plaintiff and used its own trademark. If the court mechanically applied the legal rules of the Trademark Law, the defendant might avoid liability and made profits for doing so. Instead of using the trademark law, the appellate court held that the defendant violated the principle of honest and good faith in GPCL by resorting to unfair competition, and ruled that the defendant should stop such action and compensate the plaintiff's losses. By doing so the appellate court smartly made up the legal loophole at that time because the Unfair Competition Law has not been adopted yet.

  8. 3.1 Facilitation of efficient transaction Shorter period for limitation of action Standardization of transaction 3.2 Promotion of transaction security • Compulsory rules • Publicity • Externalism • Strict liability 3.3 Protection fair dealing • Equality • Honest and good faith

  9. 4 Effect of law on business operations

  10. 4.1 Other major laws affecting a business 4.1.1 Criminal law Civil law and criminal law Criminal, administrative and civil law

  11. 4.1.2 Administrative law Civil law and administrative law

  12. 4.1.3 Consumer law 4.1.4 Employment law 4.1.5 Financing law

  13. 4.2 Legal duties arising from business activities 4.2.1 Civil duties, administrative and criminal duties 4.2.2 Limited and unlimited liability (1) Unlimited liability in usual civil cases (2) Owner of corporation may have limited liability (3) Carrier under maritime law 4.2.3 Fault based liability and strict liability (1) Almost all common law liability in tort is fault based (2) Consumer protection, strict liability (3) Employer liability (4) Legal duties may overlap.

  14. Illustration: Small bakery’s liabilities Small bakery, supermarket, contract Main problem: loaves do not feed properly through slicing and wrapping machine; called fitter to the machine several times, un-repaired; guard was removed; Operator was requested to manually push the loaf. Operator slips, his hand makes contact with the blades of slicing machine, badly injured; three fingers lost. Unable to deliver goods to supermarket. Only half of the order was performed. One loaf contained a metal bolt falling from slicing machine. Customer broke a teeth when he bit the bolt. Legal duties: (1)Bakery are liable to be prosecuted under Criminal law (2)Bakery to employee: tort of negligence (3) Bakery violated contract (4)Supermarket are strictly liable (5)Bakery are strictly liable (6) If the bakery is partnership, partners are jointly liable

  15. 4.3 Legal rights of groups affected by business activities 4.3.1 Employees (1) Collective bargain (2) Mandatory worker compensation 4.3.2 Consumers and customers 4.3.3 Shareholders (1) Minority protection (2) Derivative action

  16. 4.3.4 Creditors (1) Security (2) Bankruptcy 4.3.5 Community (1) Tort (2) Urban planning 4.3.6 The State (1) Criminal law enforcement (2) Framework for dispute settlement (3) Government regulation on business affairs (4) State owns big business

  17. Questions: What legal liabilities arise from the following cases? (1) Accountant steals money from client. (2) Company newsletter mistakenly stated an ex-employee has been convicted. (3) Company driver took a short cut across farmer’s land damaging crops. (4) Self-employed technician buys a van with stolen cheque. (5) Partners in partnership drive firm’s van without taxing or insuring it. (6) Company director burns company documents.

  18. 5 Resolution of business disputes

  19. 5.1 Judicial route 5.1.1 Court system • Unitary court structure • 4-tier system • Two instances: one appeal only

  20. Figure: People’s congresses and people’s courts nsbntmap.sys SCNPC NPC SPC Provincial people’s congress Standing committee High people’s court Standing committee Municipal people’s congress Intermediate people’s court County people’s congress Standing committee Basic people’s court

  21. SPC Figure: Chinese court system High military court High people’s court High railway court Intermediate military court Intermediate railway court Intermediate forest court Intermediate people’s court Maritime Court Basic railway court Basic military court Basic people’s court Basic forest court

  22. 5.1.2 Jurisdiction Tier jurisdiction

  23. Distribution of hierarchical jurisdiction

  24. Territorial jurisdiction Territorial jurisdiction

  25. 5.1.3 Court’s accountability Illustration: Work report of Shenyang Intermediate Court rejected

  26. In 99.99% cases the people’s congress approves such report unanimously or by over-whelming majority vote. That is why many people still deem the people’s congress as “rubber stamp”. On 14 Feburary 2001, Shenyang Municipal People’s Congress unprecedentedly rejected the work report of the Shenyang Intermediate People’s Court. According to the law, the work report shall obtain at least 1/2 of all the deputies’ votes so as to be approved. However the work report of Shenyang Intermediate People’s Court only gained 218 votes of the 474 deputies, which was obviously below the required votes. This is the fist case in the municipal level or above and therefore attracted extensive comments and discussion of the matter. It is reported that the deputies were mainly dissatisfied with the wide spread corruption within said court, where more than 1/2 of the court leaders were involved in corruption, severely unfair judgments with more than 900 pieces of wrong decisions, evident violations of procedures, establishing obstacles for correcting wrong decisions, and low efficiency in handling cases.   Driven by such rejection incident, Shenyang municipality reshuffled the leadership of Shenyang Intermediate People’s Court. The original president, Jia Yongxiang was dismissed, and other major leaders were sanctioned accordingly. Ding Rensu,former director of the municipal bureau of personnel, was appointed as the acting president. Through 3 months of restructure and adjustment by him, the work report and adjustment report of said court was eventually approved by the municipal congress on 9 August 2001. Obviously the accountability system matters.

  27. 5.2 Administrative route 5.2.1 Central and local administrative organs Central administrative organs Organization of the State Council

  28. Local administrative organs • Three tiers: • (1) provincial government and centrally directed municipal • governments • (2) county government, county-level city governments and • district governments • (3) township governments and town governments • Local governments: the heads and deputy heads of the respective governments, and the responsible persons of the component departments. • Municipal and provincial levels: Secretary-General added • Township and town level: heads and deputy heads only, no special component departments

  29. 5.2.2 Classification Major classifications of administrative organs

  30. 5.2.3 Administrative organs involved in IP law enforcement

  31. IP law enforcement bodies

  32. 5.3 Judicial route v administrative route • Administrative action: potentially more efficient • Court action: better procedural fairness 5.3.1 Costs 5.3.2 Jurisdiction and venue 5.3.3 Procedures

  33. 5.4 ADR Types of ADR

  34. Types of mediation

  35. Arbitration and civil procedure

  36. Types of arbitration